The cancer definition change that threatens the critical illness industry

A change in how cancer is treated by insurers could threaten the industry as we know it, warns Alan Lakey, director of CI Expert and financial adviser for Highclere Financial Services.

The Association of British Insurers has proposed that providers reduce the payouts for all early stage 1 cancers, questioning whether they should be treated as critical illness to ‘protect the long-term viability of the product’.

But Lakey said: “The change is an appalling one. If you develop stage one cancer of the liver, lung or pancreas then you’ve got a high chance of being dead in five years regardless of treatment.

“Many people are on the border between stage one or two. There is going to be a disagreement on whether they get the full payout and there will be those whose claim is reduced to a payment of maybe £25,000 instead of the full sum of insurance turned down.

“As soon as you start tampering with the most basic component of critical illness it will destroy the product.”

Every three years the ABI, which holds significant influence over its 250 members, meets to suggest changes to the design of key facts documents and claims wordings to promote commonality of technical terms across the industry.

The association is currently consulting with insurance professionals, including Lakey, before potentially announcing changes by the end of the year.

As an adviser Lakey added that he could no longer recommend rebroking the new product with the updated definition, even if it comes with other benefits.

This could mean the number of advisers in the industry drops, while he suggested those that recommend customers replace an existing plan could come under scrutiny from the Financial Ombudsman Service if the customer claims on stage 1 cancer with the reduced payout.

Lakey added: “Another outcome is people will mistrust critical illness, insurers and advisers more than they already do.”

Cancer is the most common critical illness claim.

In the first five years from diagnosis CI Expert research documents the survival rates for stage one cancers: They are worst are the pancreas (26%), brain (36%), oesophagus (40%) and lung (54%), followed by stomach (64%), bladder (69%) and larynx (75%).